Rocket Cos. (RKT) is generating plenty of attention from investors and home-seekers, yet there is some question as to whether the stock is a solid investment. RKT started trading at $21.51 when it went public this past August, dipped below $19, then jumped to $31.31 before sliding right back down to the low $20s and has been trading sideways ever since.

Though RKT is not off to the hottest start in the history of initial public offerings, it certainly has potential. After all, you are nearly guaranteed to see or hear a commercial for RKT mortgages when you turn on the TV or radio.

Below, we take a look at whether RKT is worthy of your investing dollars.

RKT’s Business

Most people are aware of the fact that the bulk of RKT’s revenue stems from home mortgages. RKT’s umbrella encompasses Rocket Mortgage as well as Rocket Auto, Rocket Loans, Amrock, Rock Central, Edison Financial, Lendesk, and even Core Digital Media. RKT is the parent company of the uber-popular Quicken Loans. All in all, RKT is the United States’ largest home mortgage business.

RKT’s net income on a quarterly basis is around $3 billion, a figure that represents a more than 500% increase from the same quarter one year ago. RKT revenue is up to $4.7 billion, meaning its revenue has spiked nearly 200% on a year over year basis. The boost in earnings was driven by almost $90 billion of closed loans, an all-time record for the company. RKT has the potential to increase these numbers all the more as the Fed has indicated interest rates will remain at or near record lows for the remainder of 2021 and possibly even several more years into the future.

Aside from the blazing hot housing market, RKT is also fueled by the fact that its business model is primarily digital, empowering customers to apply and obtain loans from a computer screen. If everything goes as planned, RKT could have a 25% share of the market within the next nine years.

The Analysts’ Take on RKT

Analysts are fairly bullish on RKT. Check out analyst targets, and you will find the average price target is $24.61. This is a potential upside of 17%. The lowest analyst price target for RKT is $18. The highest price target for the stock is a whopping $35. This information is gleaned from the in-depth analysis provided by 14 analysts.

RKT’s POWR Ratings

RKT clearly has potential. However, what matters most is the company’s performance in the POWR Ratings. All in all, 118 factors are considered when determining a stock’s POWR Ratings.

Check out RKT’s POWR Ratings, and you will find it has C grades in the Quality, Value, Momentum, and Growth components. As a whole, RKT has a C POWR Rating grade, meaning it is rated Neutral. You can learn more about RKT other POWR Ratings components such as Sentiment and Stability by clicking here.

Potential Catalysts for the Future

RKT has a forward P/E ratio of 11.65, meaning there is an argument to be made the stock is underpriced. There is a question as to whether the demand for housing will remain strong beyond the current year, as some economists insist it will take an entire decade for the economy to return to its pre-COVID level.

RKT has invested nearly a billion dollars in marketing across the past year, so there is certainly the potential for this investment to pay off as 2021 progresses. RKT’s current market share of 9% is likely to significantly increase across posterity as more members of the millennial and Zoomer age cohorts buy houses. These demographics embrace the digital application process provided by RKT as opposed to the conventional mortgage application process available through local and national banks.

There is also the question of how RKT will spend its cash. The company has $3.5 billion of cash-on-hand, some of which will undoubtedly be used to expand its marketing reach all the more. 

Is RKT a Buy?

RKT has the potential to become a better company in the quarters ahead. If you are considering establishing a position in RKT, you might be best served waiting on the sidelines until the economy stops contracting. Even if interest rates eventually move back up, there is the potential for home loan demand to plateau in the second half of 2021 simply because no one is quite sure how long the economic rebound will take.

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RKT shares rose $0.08 (+0.37%) in after-hours trading Thursday. Year-to-date, RKT has gained 6.68%, versus a 3.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...

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